Oil & Gas Industry Update – Q1 2015
In a rather tumultuous Q4, the oil and gas industry has seen a major reforecast of its initial predictions. Oil prices have plunged in Q4, due to OPEC’s inability to cut production in response to a global oversupply of oil.
With OPEC looking to control oil prices, the stronger exporters, namely Saudi and UAE are doing what they can to bring balance back to the market but a lack of cooperation from other producers outside OPEC as well as some other outside factors is the leading cause for the continued drop in oil prices.
With the price of Brent Crude dropping from $115 per barrel to nearly $60 per barrel within 6 months, many exporters have been hurt by the recent drop in prices. However the main players, UAE, Saudi, Qatar and other gulf nations look to remain stable despite the recent price fluctuations.
The direction of the oil prices heading into 2015 look to hinge on a number of factors that have developed over the initial weeks of 2015. Factors including the disjointed economic growth in major economies, volatility of OPEC output and potential supply demand shocks that both of these could produce. It is forecasted that oil prices could fluctuate between $50 per barrel and $80 per barrel in Q1 and 2015. While most analysts believe it will bottom out at some point, there remains uncertainty as to when this will prevail.
As the worlds largest oil exporter, much of the world in looking intently towards Saudi Arabia and how they fear in Q1.
Despite the recent announcement from OPEC, Saudi Arabia has indicated it would rather maintain its export market share as opposed to cut production in the attempt to elevate prices.
In the past, due to its significance in the world oil exports, Saudi Arabia has played the role of a ‘swing producer’, to make up for a supply shortfall.
It is projected that their production will decline in 2015 compared with 2014, however, it is not all bad news as the projected cut is actually lower than what was previously forecasted. EIA forecasts production cut from its current 9.6 million barrels per day will be somewhere above 9.0 million barrels per day. This is a direct response to the high non-OPEC supply growth.
Buoyed by their strong gas reserves (and the weak correlation of gas prices and oil prices) as well as their robust infrastructure, construction and tourism economy, Qatar’s oil and gas industry is one that is looking to flourish in testing times in Q1.
Fuelled by the worlds largest conventional gas reserve, Qatar’s position as the leading global exporter of liquefied natural gas (LNG) has increased despite recent competition from Australia, US and East Africa. This will likely pose a threat in the years to come but not as soon as 2015.
To combat such threats, it is looking to increase its investment within the petrochemical and downstream sectors as well as the increasing presence of their national oil, Qatar Petroleum International helping to sturdy the economy against the flailing oil prices.
Qatar’s ministry also said that “Solid expansion in non-hydrocarbon activities will continue to drive overall economic momentum, propelled by investment spending, an expansionary fiscal stance and population growth.”
Key points to look out for is the first phase of the Barzan natural gas project reaching 96% completion and is due to begin production in Q1, 2015 a huge player in the strength of the Qatari economy.
With fears surrounding the recent drop in oil prices and the UAE being the worlds 4th largest exporter, the recent investment in the non-hydrocarbon sector means a reduced reliance on oil revenues and potential threat the drop in oil prices could have posed on the UAE’s economy.
This has meant that the break even oil price per barrel has dropped and sits around $64 per barrel, near the lower side of the projected barrel prices through 2015 of $50-$80 per barrel.
This suggests that through 2015, providing that the oil export volumes remain constant (and oil prices remain above $64) it is estimated that the country will still enjoy a surplus and the economy and oil and gas industry finances remain manageable. Despite this, forecasted growth has been stinted but remains higher than other regions of lower export totals.
Kuwait is a main mover in the 2015 market in a time where a lot of the oil and gas industries within the gulf are looking to consolidate.
Kuwait aims to increase crude oil production a further 3.5 million barrels per day in 2015 with an eye to increase this furthermore to 4 million by 2020. This is a significant increase considering its current production stands at 3.2 million barrels per day.
Secondly, Kuwait is looking to increase its gas production to 2,600 billion cubic feet per day by 2020 through the development of non-associated gas reserves compared to the current average production of 1.5 billion cfpd.
Kuwait aims to be one of the largest movers in the oil and gas industry within 2015 and also the upcoming decade with an increase in experienced workers expected.
Australia has seen some promising developments in the past quarter that suggest greater security for them in the energy sector.
In the gas market, major projects are nearing completion including the most notable one on Curtis Island, QCLNG. Australia is becoming one of the largest exporters of LNG but with the increased global exportation of this energy source, the price is predicted to eventually fall and how this will affect australia’s economy will depend on its domestic distributors. It will be an exciting new player to watch in 2015.
There was an exciting find in the oil industry in Australia with the discovery of the Phoenix South-1 project, arguably one of the biggest finds in Australian history. It potential is expected to be released in the early weeks of 2015 and with Australia importing 90% of its oil this could be a welcome relief to the economy, taking the pressure off some of the other markets.
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